Is ‘Obamacare’ changing the playbook for sports?

As teams digest law, a few take the lead on making changes

As Sarah Petrone, the Portland Trail Blazers’ vice president for human resources, walked through the Moda Center before a game one evening last month, she saw two kinds of employees, as distinct as cats and dogs.

This has been her mindset for the past few months as she tries to navigate the NBA franchise around the strictures of the Patient Protection and Affordable Care Act, which is abbreviated as ACA and commonly called “Obamacare.”

The new law’s most significant distinction divides workers who average more than 30 hours a week over the course of a year — and therefore must be offered health insurance by their employer — from those who fall short and don’t qualify. To Petrone, who understands the ramifications, each employee was a notch in one category or the other.

The ticket-takers? Less than 30 hours, to be sure. The housekeeping staff in maroon shirts? Some yes and some no, depending on how many arena events each one works. The press box attendants? The bartender at the Sphere nightclub inside the arena? That guy with the “University of Portland” fleece pulling a forklift through the arena bowels? No way to tell. It’ll depend on what the time sheets say.

Obama’s law has teams looking at payrolls and stars like LeBron James spreading the word.Photo by: GETTY IMAGES

The ACA has ushered in a new and confusing era for the human resources departments of sports franchises, as it has for most every other kind of business. The stakes for shaping a suitable compliance strategy are high. Health care costs an average of more than $10,000 per employee, according to Jim Na, the vice president of employee benefits for Kibble & Prentice, a Seattle-based financial services firm that’s helping “13 or 14” teams across the four major North American sports leagues respond to the ACA.

The vast majority of full-time employees are currently covered under some form of team-issued health insurance, but the

definition of full-time has always been sized to fit as needed. Not anymore. For some teams, Na calculates, the addition of as few as 25 employees who now must qualify can mean an annual increase of $350,000 or more.

Teams are receiving little guidance from their leagues as they struggle to comply. Even the NBA, which has a suggested standard for everything from logo design to the operation of remote-control blimps, is leaving details to its individual teams.

Most franchises are saying little about what they’re doing. In many cases, it seems, it’s because they’re doing little, merely “studying the legislation” and “waiting to see exactly what’s required,” comments offered up time and again by communications officials of the nearly two dozen teams across the four major sports leagues that were queried by SportsBusiness Journal about their reaction to the law. The topic is hard to understand and politically sensitive. Strategies to deal with it are often proprietary. That radioactive combination means few executives are comfortable speaking about it on the record. In many cases, they won’t even discuss why they can’t discuss it.

But like any paradigm shift, the implementation of the ACA is giving the progressive franchises an opportunity to distance themselves from the pack with imaginative, innovative thinking. “Our initial analysis showed that it won’t significantly change our operations,” said Jeff Pellegrom, CFO of the Minnesota Wild. “Our part-timers will still mostly be part-timers. But with all the changes, we’re actually continuing to look at it. It’s a partnership between operations, HR and payroll working together to determine the impact.”

At the most proactive level, teams such as the Trail Blazers see the ACA as an opportunity to reassess hiring and task distribution across the entire workforce. Everything from strategic issues such as the number of employees to tactical considerations like the hiring practices of interns is on the table. “We’re paying close attention,” said Chris McGowan, the team’s president and CEO.

Those who are lagging behind may find that later is already too late. “The dumb teams right now — I don’t mean to call them dumb, but if you don’t know how to manage this from the beginning, you’re going to run into a lot of compliance problems,” Na said.

You’re also liable to lose a lot of money. “Outside of payroll, this is usually your next-biggest spend,” Na said. “For a company of 100, we’re talking about $1 million in benefit costs. So it’s worthwhile to pay attention now and try to figure it out.”

At first glance, the ACA wouldn’t seem to affect sports teams any more than it would any business of a similar size. The legislation itself is relatively straightforward. Rather than letting the marketplace dictate a company’s approach to health care, companies with 50 or more full-time employees now must offer all of them access to insurance. (Failure to do so is purposefully onerous: an annual penalty of $2,000 times the total number of employees on the payroll beyond 30.)

The ACA’s definition of a seasonal employee, like concession vendor Travis Jenkins in Dunedin, Fla., has teams re-evaluating their workforce.Photo by: GETTY IMAGES

But almost everything in the law is open to interpretation, or at least subject to fine print. For example, sports are inherently seasonal. And though executive staffs remain constant all year, employees such as game-day workers, locker-room attendants, videotape loggers and others are often employed only when needed, like grape-pickers or salmon-canners. Do they need to be offered insurance, too?

In many cases, they do. In January, the ACA’s definition of a seasonal employee, one who is exempt from the law even if he or she exceeds 30 hours a week during the time of employment, was altered. Instead of being able to work up to eight months out of every year, the law now only allows a seasonal employee to work for six months. One day more than that, and the employee effectively becomes full time. So that change effectively eliminated the category for employees of MLB, NBA and NHL teams, as well as any NFL team with designs on the playoffs.

Sports is different from other industries in other ways. Because it benefits from what several executives referred to as a “coolness dividend,” inexperienced workers, including students, have typically been willing do almost anything in exchange for minimal compensation, just to get a foot in the industry door. “There’s a history in the sports industry of that,” said Dick Cass, president of the Baltimore Ravens. “There’s a sizzle factor to being employed by an NFL team. They really want to work here. They enjoy working here. It’s a résumé-builder for them.”

But now, even though many employees are willing to work without health insurance, they must have it. So the cost of letting someone work all day and night to get that foot in the door just got a lot more expensive. For many teams, that may mean at least a modest restructuring of the workforce. “When you hire an intern, it’s now a much more significant hire than it has ever been,” Cass added. “It’s not just a throwaway hire now that the expense of insuring that person is involved. So we start thinking, ‘Should we hire one experienced person full-time rather than three interns?’ Maybe there’s more value there.”

Smaller teams are affected differently. Those with fewer than 50 employees, such as nearly all the minor league franchises coast to coast, remain unscathed. But 50 is a number well within reach of an MLS team, for example, and the pressure to keep payrolls below that — and thus the team eligible for noncompliance — will be strong.

Executives study time sheets to see which employees will be affected.Photo by: GETTY IMAGES

That’s also true for the corporate entities and holding companies that have bought up multiple minor league baseball teams, such as Mandalay Baseball Properties, owned by film producer Peter Guber and other investors in partnership with a New York private equity firm. Each of the teams it owns may have only a dozen employees. But taken together as part of the same corporate structure, their number may well exceed 50, which would necessitate compliance.

For NFL teams, which have at most only a dozen home dates a season even when the preseason and playoffs are included, stadium workers, vendors, cheerleaders and other game-day employees will never approach the 30-hour weekly average. Their status remains unchanged. But MLB teams, as well as NHL and NBA teams that either share the same workforce or control their own arena, have entire categories of employees that may now qualify.

That’s what leads Petrone to pore over the time sheets, trying to calculate who will be affected and who won’t be.

Petrone is spearheading the Blazers’ effort to comply with the ACA in the most efficient way possible. Most big league franchises have someone like her, usually in human relations — though the Blazers seem ahead of most of the others in trying to shape their policies to best fit the law.

After working in far-flung industries such as entertainment, dental equipment and wind technology, Petrone started with the Blazers in June 2013. Three weeks later, Vulcan Sports & Entertainment integrated the 1,400 employees at what was then the Rose Garden, which had been purchased by the company out of bankruptcy, into the Blazers’ workforce. That meant hundreds of arena employees who might typically work concerts, Stars on Ice, arena football and the circus on top of basketball games now were paid by the same entity that owns the Blazers.

New categories of employees may now qualify for health insurance coverage.Photo by: GETTY IMAGES

She started by simplifying her workforce into full-time, part-time, and interns, doing away with categories such as “part-time office” and “regularly scheduled.” Faced with the need to accurately clock the hours of their employees to the minute in order to calculate whether they qualify, her team was able to successfully push for and implement a new electronic timekeeping system that had been put off for years.

That happened because the Blazers, from Vulcan CEO Peter McLoughlin on down, realized the need to react as intelligently as possible to the new law. Instead of assigning it to a department head and asking for a report in six months or a year, they convened a series of meetings across all categories to figure out potential ramifications — and strategies to deal with them. “They have all the right people in the room for the discussions,” said Wade Symons, a principal at Mercer Health and Benefits, a New York-based consulting firm that the Blazers — and several other franchises across the major sports, as well as companies such as Adidas America and REI — are using to help with mitigation efforts. “This is a workforce issue, but it’s also a planning issue, even an IT issue,” he said. “They understand that.”

The Blazers realize that the strategies to deal with some of these issues may come from other industries. They’ve empowered Symons to cross-pollinate, taking an idea that works for one client and adapting it for another. “We work with the big companies of the world, and they tend to be on the cutting edge of some of these things,” Symons said. “So let’s see what we can do to scale some of them down to work for the Trail Blazers.”

An example of that kind of idea is the “Centers of Excellence” concept used by large companies, something that the Blazers are examining with the understanding that insurance rates will continue to rise. “Anybody that’s going to have heart surgery, they’re sent to the Cleveland Clinic, the top facility in the country, rather than the local specialist,” Symons says, citing Lowe’s as one company that has adopted this policy. “They’ll pay travel, hotel, meals. All of that combined will still enable them to come out ahead over the long-term because the quality of care they’ll get. Issues are far less likely to recur.”

At that scale, too, it’s even possible for a company to insure employees itself, mitigating against extraordinary costs with reinsurance policies. Might that be cost-efficient for an NBA team like the Trail Blazers? “Eventually, it might,” Symons said.

Neither of those innovations would be a direct ramification of the ACA. But they’d be a side effect of the conversation the ACA has generated internally about how the team should care for its employees.

The last thing an employer wants under the ACA is an employee working, say, 33 hours a week but getting full benefits. As a result, employees in some areas, such as housekeeping and box office, have been downgraded. Others, proved redundant by part-timers, may lose jobs before next season. While the full effect — and the number of employees downgraded, reassigned or furloughed — won’t be known until later this year when the tracking period ends, “We’re finding that it’s having a lot more effects than we initially assumed it would,” Petrone said.

Spurred by the ACA to consider all aspects of employee remuneration, and well aware that the Blazers compete with other industries for talent, Petrone also looked to extend perks into the realm of part-time workers. “Even if we don’t supply benefits,” she explained, “what are ways that we can make our part-time experience better?” The free movie tickets, gym memberships, discounts at the team shops and mass transit vouchers that full-time employees had always enjoyed have lately been extended to many part-time employees.

“And now we’re asking, ‘Someone who works 27 hours a week all year, could we get them some paid time off?’” she said. “That’s not something we have to do. But when you look at the big picture, as the law has forced us to do, it makes sense.”

All federal legislation is political, and the ACA is more political than most. Universal health insurance in some form has been part of the Democratic agenda for years. The Senate’s version of the act passed in the U.S. House of Representatives in March 2010 by just seven votes. All of the 178 Republican members at the time voted against it.

Faced with the challenge of complying with the act, many conservatives fear that businesses will simply choose not to grow. “The more likely outcome is not that people working 30 hours a week will get health care,” said U.S. Rep. Richard Hanna, a Republican whose congressional district meanders across New York State from Ithaca to Newburgh. “It’s that people who are marginally employed might find themselves having their hours lowered.”

As it happens, Hanna attended Reed College in Portland during the Trail Blazers’ glory years of the late 1970s. Living in Portland as a student, he’d see Bill Walton riding a bicycle down his street. He has a soft spot for the Blazers, and feels for their attempts to solve one of the most nuanced pieces of legislation enacted in recent years. “If I learned anything at Reed,” he says, “it’s the power of unintended consequences. The accepted wisdom on how something is likely to work out is nearly always wrong. That seems to be the case here, in my opinion.”

Accordingly, Hanna has ruminated about introducing a bill that would exempt sports teams — such as the American Hockey League’s Binghamton Senators, who play in his district, but also teams owned by billionaires like the Trail Blazers that don’t — from the ACA. “They just changed it for fire departments,” he said. “So do the same for sports teams.”

Hanna acknowledges that the extra cost to cover employees is negligible compared with the economic scale of major league franchises. And it’s also true that the vast majority of minor league teams will remain unaffected by the legislation even as it currently exists. But he feels strongly that sports teams should be rewarded for their role in pulling together the communities they serve, and he chafes against the idea of any economic disincentives to add employees, no matter how far around the bend they may be for the mom-and-pop organizations typical in the low minors. “You need to give small businesses — small teams — a little forgiveness,” he says. “Give them an opportunity to grow.”

Asked about the political unpopularity of exempting franchises worth hundreds of millions of dollars while neighborhood shops and restaurants would still need to comply, Hanna was undeterred. “One of the biggest exemptions in the history of this country is baseball’s exemption to antitrust legislation,” he said. “And it’s still in place today.”

Might sports teams be exempted from the new law? One congressman believes so.Photo by: GETTY IMAGES

Financial implications on sports franchises, most everyone agrees, will only get more onerous. In 2018, when the so-called Cadillac Tax kicks in, annual premiums of $10,200 or above for individuals will result in a 40 percent excise tax paid by the employer for every dollar beyond that. So an employee health care plan valued at $20,200 as of 2018, which isn’t a particularly outrageous scenario, means that an additional $4,000 must be paid to the government by an employer for each person on the payroll who accepts it. “Every single one of my sports clients is going to hit that by 2018,” Na said. “Some of them will hit that number this year.”

The Cadillac Tax was added to the ACA as incentive for providers to keep costs down. If it doesn’t have that result, the provision may be altered. For the foreseeable future, though, the ACA as written is the law.

As franchises work out how to comply with it, whether now or eventually, the effort will presumably force them to operate as more efficient businesses, restructuring their workforces into ways that eliminate waste and duplication. “In that sense,” Mercer’s Symons acknowledged, “it’s a good thing.”

And there’s also a tangible long-term advantage for franchises that may well end up being worth all the trouble and expense, which is the reason the law was enacted to begin with. Starting soon, all full-time employees will have health coverage. That means they’re likely to get sick less often and be more productive. On that, statistics are clear.

“Forgetting about the politics, we want our employees to have health insurance,” the Ravens’ Cass said. “It doesn’t feel right that a certain segment of our population can’t afford to see doctors. These are our employees. We value them. We want to take care of them.”

Bruce Schoenfeld is a writer in Colorado and a frequent contributor to SportsBusiness Journal.